If Given the Option to Permanently Invest in a Single Stock, This Would Be My Choice
Hershey's venture into my portfolio began in late 2023, and over the course of a year, I amplified my shares to what I deemed a full position. The stock's fundamental story hasn't altered at all since my initial investment, and if I hadn't already invested fully, it would still be in the top priority to purchase. Here's the reasoning behind my fondness for Hershey in the current day.
So, what does Hershey do?
If you plan on investing in and holding Hershey stock, diving headfirst into one vital fact is essential: this company's primary business revolves around sweets.
From Hershey's iconic chocolates to everyone's favorite peanut butter cups – Reese's, this company is all about satisfying your sweet tooth cravings. Even when diversifying into pretzels and popcorn, Hershey's ventures remain focused on snacks, albeit salty ones.
While health concerns and political debates spur changes in eating habits, it is highly unlikely that the government will successfully regulate chocolate out of existence. With its affordability and appeal, chocolate will undoubtedly continue to satisfy our taste buds.
As for the burgeoning wave of weight loss medications making headlines, I have my doubts about the long-term compliance of people with these drugs. Historically, adherence to drug protocols for extended periods tends to drop significantly, with some estimates suggesting around a 50% drop-off rate.
Despite these challenges, I am confident in Hershey's long-term prospects due to its focus on sweets. To add to this, I am thrilled about the Hershey Trust's role in the company.
This not-for-profit organization owns a substantial portion of Hershey's voting rights. The dividends collected from the company are earmarked for philanthropic endeavors, thus ensuring a vested interest in maintaining a profitable and steadily growing Hershey. Sharing this ultimate goal, I see the Hershey Trust as an invaluable ally in my portfolio.
Time to acquire Hershey shares
The main hitch for Hershey is cocoa prices. As a commodity, cocoa prices have been experiencing a supply shortage, leading to sky-high prices.
Though this situation is significant and uncommon, Hershey has proven its resilience in navigating market volatility. Even if the high cocoa prices persist, the company will simply pass on these additional costs to consumers.
While this transition process may take some time, chocolate's affordability ensures that Hershey will be able to successfully implement price increases. The products' overall affordability coupled with high popularity amongst the masses makes achievement of this seemingly impossible task quite likely.
Considering the transient nature of the difficulties facing Hershey, it appears that a suitable time for investment has arrived. The dividend has not climbed every year, but it has exhibited consistent growth.
In addition, the 3.5% dividend yield is currently near all-time high levels across decades. Breaking this down, Hershey is a reliable dividend payer that, based on historical trends, seems undervalued.
Should my assumptions prove correct, the unfavorable headwinds appear to be only temporary. Along with a boost in the stock price, an improving dividend yield looks promising.
It is essential to recognize that navigating this bumpy road may take a few years. If you decide to invest, like I have, be prepared for turbulent waters and the necessary patience. However, the 15% dividend increase at the start of 2024 offers compelling evidence that management and the board are optimistic about the company's future.
Facing similar difficulties as 2024, Hershey's management and board clearly demonstrate a belief in investing in their shareholders, both during good and bad economic cycles.
While inflationary pressures in the cocoa market may caprate dividend growth over the upcoming years, a 3rd of the 2024 increase would still amount to a fantastic return for a consumer staples company.
Given the reliable dividend payer status of Hershey, carefully managing your finance and investing a portion of your money in Hershey stocks could yield profitable returns in the long term. As the Hershey Trust's vested interest in maintaining a profitable and growing Hershey ensures a steady growth path, investing in Hershey shares may become an essential part of your diversified investment portfolio.
